Lotte Duty Free and The Shilla Duty Free will battle it out to operate a duty free concession at Jeju International Airport. Source: Wikimedia.

The Korea Airports Corporation (KAC) has shortlisted Lotte Duty Free and The Shilla Duty Free as preferred bidders for the Jeju International Airport duty free store contract, TRBusiness can confirm.

A Lotte source this morning verified a report in Korea Duty Free News naming Lotte and Shilla following bids submitted by Lotte, Shilla and Shinsegae earlier this week to operate the five-year concession.

The bid is taking place in line with the expiration of Hanwha Group’s licence, due later this year.

Applicants will now apply to the Korea Customs Service (KCS) for a patent examination on 20 November.

The KCS will then evaluate the two operators with the final decision expected to be made in December, TRBusiness understands.

Tensions over THAAD appear to be cooling. Source: US Army.

CHANGING JEJU DYNAMIC

A well-placed South Korean source told TRBusiness earlier this week that the KAC’s proposal of 20.4% as the percentage applied to sales to calculate rent – down from around 30%-35% previously – was designed to foster market competition.

“The minimum as proposed by KAC is  20.4%, but this will be over 30% on year-in bids,” said the source.

Further detail on the concession arrangement is at this stage unclear, and the Lotte source refused to comment further on any possible setup as the bid is ongoing.

However, it is likely KAC will consider a combination of the MAG/rental payments together with general business competitiveness in deciding the selection of the final operator.

CHINESE SET TO RETURN?

The news at Jeju International Airport, which is considered a lucrative location for duty free retailers due to its generous allowance regulations for South Koreans, is timely given last week’s encouraging signs that the tension surrounding the Terminal High Altitude Area Defense (THAAD) system between Beijing and Seoul is beginning to thaw.

The apparent resolution of diplomatic relations between China and South Korea was well-anticipated by TRBusiness earlier this month, as diplomats met on the sidelines of the 24th Asia-Pacific Economic Cooperation (APEC) Summit, which coincided with Lotte Duty Free’s opening at Danang International Airport in Vietnam.

Lotte Duty Free had operated a duty free concession at Jeju International Airport before handing it over to Hanwha Galleria in 2014. Hanwha’s licence is set to expire at the end of this year.

An official Lotte statement offered at the time confirmed signs that the long-standing differences over THAAD, which effectively ‘banned’ organised Chinese tour groups to South Korea in a move that has had grave ramifications for the country’s tourism and duty free business, were set to be resolved.

However, the statement was more cautious in its assessment of a return to growth for duty free.

“It seems that it will take a considerable amount of time before the reactivation of Korea’s duty free market, since there are certain steps that should be preceded, such as securing flights and organising travel packages. We will carefully watch how the local situations in China develop and take actions accordingly.”

On the other hand, the outlook for a more immediate return to growth in Chinese travellers to South Korea is more positive.

“I think that Chinese tourists will return again from next year and sales will increase when they come again,” the source added.